Factors that contributed to last year's propane price volatility remain

By JOHN HERRICK / VTDigger

Posted:
09/05/2014 03:00:00 AM EDT

Updated:
09/05/2014 06:20:28 AM EDT

MONTPELIER -- Northeast propane dealers are urging customers to fill their tanks this summer to help prevent shortages linked to last winter's record high prices.

Residential propane prices have dropped from the more than $4 per gallon peak last winter, but the infrastructure challenges in the region that drove those shortages remain, industry representatives say.

Matt Cota, executive director of the Vermont Fuel Dealers Association, said last year's price spikes are not likely to happen again because dealers and customers are being proactive.

He said Northeast propane dealers are better stocked with propane supplies than they were last year. Dealers are also urging customers to arrange for pricing and deliveries ahead of the heating season and make sure their homes are as energy-efficient as possible.

"That is where you can really have an advantage and alleviate some of the pressure going into the winter," Cota said.

He said the price of all heating fuels has dropped in recent months as the U.S. dollar grew stronger. The price of propane dropped 11 percent between July and August this year, according to the Vermont Department of Public Service. The average residential price with discounts and credits currently set at $2.81 per gallon.

Propane prices spiked last year after Midwest farmers used the gas to dry crops after a wet fall and ahead of a cold winter.

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The shortage and high demand caused prices to reach record highs across the county. In addition, industry representatives said there were inadequate locations to store propane, forcing dealers to drive long distances to find supplies.

This year's crop harvest is still under way and the effect of drying on propane supplies are uncertain, industry representatives say. But dealers' top concern this year is finding a location to store large amounts of propane in the Northeast.

Joe Rose, president of the Propane Gas Association of New England, said most propane marketers do not have enough storage on site to keep prices stable all year. He said the average marketer's out-of-ground storage tanks last about three to five days during the winter.

He said some Northeast marketers this summer have added storage tanks, "but not enough to make a huge difference."

Rose said there are only two large storage facilities in the region -- the Enterprise Products facility in Providence, Rhode Island, and the Sea-3 Inc. facility in Newington, New Hampshire. The Providence facility is still empty, he said.

The industry has been pushing for years to reopen a propane storage facility in New York that Rose said was closed in the late 1980s for economic reasons. Project proponents say reopening the Finger Lakes salt cavern would provide the Northeast with enough propane supplies to avoid shortages.

However, Rose said New York residents have safety and environmental concerns and the project does not have the support of Gov. Andrew Cuomo.

"Everybody wants cheap energy," he said. "But nobody wants it running through their town or stored in their town."

Propane is carried to the Northeast by rail, pipeline and ship. In Vermont, the gas is transported mostly by rail. Propane is a product of natural gas and can be transported as both a liquid and a gas.

A company that owns a pipeline carrying propane from Texas to the Northeast reversed the flow of a section of the pipeline to bring natural gas from the Marcellus shale fields to the Gulf Coast for export. Rose said the reversal reduced the capacity of the pipeline to bring propane to the Northeast by 44 percent.

He said federal regulators approved the reversal as long as it did not impact supplies in the Northeast. He said if exports continue, at some point the industry may push to have them limited.

Mike Ryan, 73, is now retired and living in Hyde Park and said he is not connected to the gas industry. He worked in management at Digital Equipment Corp. and later spent several years as an independent consultant.

When Ryan saw his propane bills rise last winter, he decided to investigate the source of the price spikes.

He said the propane industry is now seeking to bring more natural gas to the Gulf of Mexico rather than to the Northeast for domestic use because it is more profitable. Ryan said this gas should be used to satisfy domestic demand before the industry makes more profits on exports.

Ryan said he contacted Vermont's congressional delegation to address the issue before they later called on the Obama administration to curb exports in order to free up more supplies.

Industry representative say the United States produces the world's lowest-priced propane. According to the U.S. Energy Information Administration, exports of domestic propane and propylene increased 400 percent between July 2010 and 2014. In August, the U.S. exported 435,000 barrels per day.

"The market for propane out in the world is pretty limitless," Ryan said.

Nonetheless, he and industry proponents say more storage capacity in the Northeast is needed to keep it profitable to send gas north.

Cota said it is unlikely there is the political will to limit exports permanently. In fact, he said Congress is considering lifting a restriction on crude oil exports. He also said it is unclear how the markets would react to export restrictions on gas.

"Would other countries react in a negative way if we banned exports? That's certainly something to be concerned about," he said.

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